Walmart sustainability at 10: The birth of a notion

Walmart sustainability at 10: The birth of a notion

Lee Scott, Walmart's CEO at the time, kicked off the company's sustainability push in 2005 with a speech on "21st Century Leadership"

It’s been 10 years since Walmart set out on its quest to become a leader in sustainability, beginning with three bold, aspirational goals. This is the first of a two-part series that takes stock of the company and its progress, as well as its sustainability journey over the past decade. Part one looks at the origins of Walmart’s strategy. Part two assesses the company's progress.

On Oct. 23, 2005, Lee Scott, at the time CEO of Wal-Mart Stores, Inc., spoke from the auditorium of the company’s Home Office in Bentonville, Ark., the first time a company speech had been livecast to every one of the company’s stores, clubs and distribution centers.

Scott acknowledged that “we are in uncharted territory as a business," thanks to the company’s massive size and scope. "If we were a country, we would be the 20th largest in the world. If Walmart were a city, we would be the fifth largest in America." He also acknowledged, although not explicitly, that his company had been under fire on a range of topics, from employee wages and healthcare to community and environmental impacts. Nearly every interest group, it seemed, could point to something wrong with Walmart.

But Scott also had recently gotten a glimpse of what was right with Walmart, and a vision of what a leadership company looked like.

Less than two months before Scott’s speech, Hurricane Katrina ravaged America’s Gulf Coast. The storm hit some of Walmart’s stores and clubs. Some of the company’s employees lost their homes and savings; a few lost their lives. Still, Walmart associates in the region rose to meet the challenges.

One store manager in Waveland, Mississippi, took a bulldozer to clear a path into and through her store, finding every dry item she could to give to neighbors who needed shoes, socks, food and water. "She didn’t call the Home Office and ask permission," Scott noted. "She just did the right thing."

What if we used our size and resources to make this country and this earth an even better place for all of us: customers, associates, our children and generations unborn?

In Katrina’s aftermath, government agencies, relief agencies and communities turned to Walmart (and other companies) to help. Walmart, with its sophisticated and highly efficient logistics operation, was able to get supplies to where they were needed far faster than federal and state agencies could. It was a shining moment for the company, and some much-needed positive press.

It was also an eye-opener for Scott. As he put it in his speech:

Katrina asked this critical question, and I want to ask it of you: What would it take for Walmart to be that company, at our best, all the time? What if we used our size and resources to make this country and this earth an even better place for all of us: customers, associates, our children and generations unborn? What would that mean? Could we do it? Is this consistent with our business model? What if the very things that many people criticize us for — our size and reach — became a trusted friend and ally to all, just as it did in Katrina?

After asking the questions, Scott attempted to answer them. He laid out some big environmental goals for the company, as well as announcing an employee healthcare plan, a commitment to engage more effectively with communities, to advocate to raise the minimum wage and to improve workforce diversity, among other measures.

The minimum-wage proposal made the headlines — "Wal-Mart calls for minimum wage hike," reported CNN — but the three environmental goals arguably had more immediate and far-reaching impacts:

To be supplied 100 percent by renewable energy.

To create zero waste.

To sell products that sustain our resources and environment.

Scott was quick to add: "These goals are both ambitious and aspirational, and I’m not sure how to achieve them — at least not yet. This obviously will take some time."

A force for good

Ten years later, Scott’s words are proving prophetic: Addressing these commitments is, indeed, taking some time. Answers to the questions about how Walmart can achieve its ambitious sustainability goals are in view, if not always in focus. The company, which notably did not set any timelines for these goals, nonetheless has been on a steady march of progress, moving forward on dozens of fronts — far more than most of the public or many of its critics understands or appreciates.

Addressing these commitments is, indeed, taking some time. The answers to the questions about how Walmart can achieve its ambitious sustainability goals are in view, if not always in focus.

Along the way, Walmart — whose worldwide annual revenue has grown by just over 50 percent since Scott’s speech, from about $315 billion to $485 billion, and from about 6,500 Walmart and Sam’s Club stores worldwide to more than 11,000 — has sent reverberations throughout its sprawling supply chain, including nearly every consumer packaged goods company. To varying degrees, its suppliers have cut energy, water, materials, toxic ingredients and other inputs, and created less waste and fewer emissions — for themselves as well as for Walmart stores and consumers. It’s hard to find a sector untouched by the company’s environmental ambitions, including many business-to-business sectors at the far reaches of Walmart’s supply chain, and at the far reaches of the globe.

The nagging question, of course, is whether and how all this activity makes Walmart "sustainable," or anything close. Given the company’s size and appetite for growth, its relentless drive to cut costs and the aggressive demands it has been known to make of suppliers, there’s still plenty to criticize. And amid all the changes, one thing is constant: Walmart remains a lightning rod for labor unions, environmental and other activist groups and local communities, critical of the company’s impacts on its workers, suppliers and the communities in which it operates and sources its goods. And, of course, on the planet.

But there’s little question that Walmart is perceived differently these days, no longer as a recalcitrant laggard in the arena of social and environmental sustainability, but as a force for good — albeit, a big and sometimes lumbering one. To the extent the retailer wanted to reverse its reputational slide, it largely has succeeded. Today, it’s a matter of making a difference as big as the company itself.

But we’re getting ahead of the story.

Under attack

The tale of how Walmart got to Scott’s speech in October 2005 is telling, both of the existential crisis the company faced at the time as well as the vision that launched a thousand initiatives.

At the time, in the early and mid-2000s, the company was under attack on multiple fronts. I recall sitting in on a meeting of activist groups convened in the San Francisco offices of a socially responsible investment firm in the early 2000s. The group was pondering a unified strategy for confronting Walmart on its many perceived environmental and social sins. At the table were perhaps two dozen organizations, addressing forests, fisheries, agriculture, toxics, new moms, human rights, indigenous people, healthcare and more.

I was particularly struck by the presence of the Mineral Policy Center, a small nonprofit dedicated to cleaning up the environmental problems caused by mining and onshore oil development. (It is now part of the nonprofit group Earthworks.) I asked: Why were they present?

The eight-word answer was an eye-opener. "Walmart is the largest jeweler in the world," they responded. Nothing more need be said. It became crystal clear that the tentacles of this company were vast and complex, and so would be the activists’ response. And it was also clear that Walmart would have its work cut out for itself if it intended to dig itself out of the reputational hole these activists had helped create.

System conditions

Around this time, in 2004, Jib Ellison was a management consultant in a San Francisco boutique firm called Trium. An accomplished river guide, he was known for taking corporate executives on "learning journeys" into nature to learn about innovation, teamwork and communication. His expertise was in helping companies solve big problems and manage crises.

Blu Skye's Jib Ellison.

Along the way, Ellison attended a presentation about the Natural Step, a Swedish-born sustainable business framework that had a brief moment in the sustainability spotlight in the U.S. during the early 2000s. The Natural Step framework sets out four science-based "system conditions" required for the sustainability of human activities on Earth, and has been used by a handful of companies to orient their sustainability strategies and activities.

The presentation led to an epiphany by Ellison: that the framework could fit with his existing work to create long-term advantage for companies by aligning their strategies with the planetary limits imposed by the Natural Step.

Ellison left Trium to explore this notion. Among the people he talked to was Peter Seligmann, founder and CEO of Conservation International, a prolific fundraiser who, in Ellison’s estimation, "had a bunch of people on his board who ran big companies who obviously were interested in these sorts of issues because they gave him millions of dollars every year."

One of those people was Rob Walton, chairman of the board of Wal-Mart Stores, with whom Seligmann had developed a close relationship, including sharing a diving trip in Costa Rica and, over time, hiking in Madagascar, boating through Brazil and another diving trip, in the Galápagos. Seligmann introduced Walton to Jib Ellison.

As it turned out, Walmart was seeking advice on how to deal with the public relations challenges it was having with communities, environmentalists and labor. The conversation led to a meeting in Bentonville. It also led Ellison to form a company: Blu Skye Sustainability Consulting.

Beyond a defensive crouch

In early 2005, Ellison, Seligmann and Glenn Prickett, who at the time headed CI’s Center for Environmental Leadership in Business, flew to Bentonville to meet with Walton, Scott and others at Walmart’s famously modest redbrick Home Office.

"They were so isolated in Bentonville at that time they really didn't understand why people didn't just love them," Ellison recalled to me recently. "They're like, ‘We do everything right. We deliver to our customers every day the lowest price. We're hardworking. We have integrity.’ That was their story."

They were so isolated in Bentonville at that time they really didn't understand why people didn't just love them.

During that meeting, Scott and his colleagues began to understand that being proactive on environmental and social issues might be a better strategy than the defensive crouch that had been the retailer’s principal approach to its critics.

Along the way, Scott and his colleagues realized that they needed Blu Skye’s help. Built on the backbone of a growing engagement with Walmart, Blu Skye would become one of the leading boutique sustainability consultancies and Walmart’s principal "river guide" as it traversed the twisting and sometimes treacherous journey toward sustainability.

One of the first people inside Walmart that Jib Ellison tapped was Andy Ruben, the company’s vice president of corporate strategy. Ruben had come to Walmart in 2002 after a consulting role at Capgemini, and quickly became one of Scott’s trusted lieutenants. Ruben and Ellison met at Scott’s suggestion.

Andy Ruben, Walmart's first sustainability director.

Ruben immediately liked Ellison, as he recently recalled. "He was a river guide — an expert at realizing that you're not controlling the river. You're in a canoe and your job is to be able to read the rapids and to maneuver through life. Walmart needed a river guide. It didn't need someone who was an expert in carbon at that moment. A river guide helps you understand the landscape and what you can do."

The company wasn’t yet talking about "sustainability." The conversation at the time focused on "corporate responsibility." Whatever it was called, it quickly became a major topic at the Home Office.

In September 2004, Scott and Ruben convened a group of executives for a two-day offsite meeting, at the Shewmaker Center for Workforce Development, a "corporate learning" center at NorthWest Arkansas Community College, not far from the Home Office. Assembled was a group of about 35 company leaders, handpicked by Scott. The group also included two outsiders: Ray Anderson, the visionary industrialist behind Interface carpets, and Fisk Johnson, the fifth-generation chairman and CEO of S.C. Johnson & Son, and a leading Walmart supplier.

The meeting focused on the state of Walmart’s world and what everyone wanted that world to be, in terms of how the retailer was perceived by and interacted with its partners and stakeholders. Both Walton and Scott stuck around for the entire two days of the meeting, a strong sign of the interest from the highest levels of the company.

"There was a lot of debate and back and forth and they all raised their hand that it seemed pretty authentic," recalled Jib Ellison. "And then the rest of the day was just practical planning. Where should we start? What should we do?"

The meeting broke into small groups, which would become the basis for what were later called Sustainable Value Networks. There were a half-dozen or so networks to begin, on topics such as transportation, supply chain, food, corporate culture — areas where individuals had both expertise and passion, and that mapped to the company’s biggest challenges and opportunities.

The group agreed to reconvene in a few months. By the time they did, in December, there was little question that the company needed to move forward with a strong stance on corporate responsibility — primarily environmental issues, with a few social ones mixed in. To the group, it seemed, as Ruben later put it, "a no-brainer."

Under fire

It wasn’t a tough decision: The company was under fire from all directions.

The dissonance was so great between what I saw happening — people with such great intention, what their aspiration was and what they were doing — from the way that that company was now being perceived outside of Bentonville.

"You felt like you were in a bunker of some sorts and there was enemy fire every time you stuck your head up," Ruben told me last month. "The dissonance was so great between what I saw happening — people with such great intention, what their aspiration was and what they were doing — from the way that that company was now being perceived outside of Bentonville."

By early 2005, Ruben and Ellison were working together on a regular basis, and Ruben was being seen by Walmart’s leaders as the logical choice to become the company’s first sustainability director.

"Lee started talking to me about moving into sustainability as a role," recalled Ruben, who left the company in 2012 to co-found the online sharing platform yerdle. Initially, Ruben wasn’t interested. "I turned it down twice until he formally said, ‘I want you to do this.’ I remember sitting across from him — we were travelling together and he was doing a crossword puzzle — and he said ‘Have you thought again about doing sustainability?’ and I gave him the same answer where I basically said, ‘Yeah. I've talked to a lot of my mentors. Everyone thinks it's the worst idea in the world for me. I want to run neighborhood markets.’ He looked over his bifocals and said, ‘We're so young to think we know what's best for us.’"

Ruben went home that night and talked to his wife. "I basically said that if we don't do this, I'm going to lose my job and we're going to have to move out of Arkansas. I loved the area, so we agreed, ‘Let's do it.’ I went back in and told Lee, ‘I've thought about it and I'm ready.’ I remember Lee's words: ‘I think that's smart.’ That's all he said."

As an aside, it’s noteworthy that Ruben wasn’t the only corporate executive having this sort of conversation about making career moves into sustainability. During roughly the same period, Lorraine Bolsinger, chief marketing officer for GE Aviation, was being asked by GE CEO Jeffrey Immelt to head a new initiative called Ecomagination. (She is now CEO of GE Distributed Power and CMO of GE Power.) And Mark Tercek, after two decades as an investment banker at Goldman Sachs, was being asked by its CEO, Hank Paulson, to develop the firm’s environmental strategy and lead its Environmental Markets Group. (Tercek is now CEO of The Nature Conservancy.) The year 2005 seemed to be a pivotal time for a few big companies, under fire and scrutiny by activists, to stake a leadership position in sustainability.

Melissa’s paint can

As the Walmart team dug in, it began a series of projects. There were three types: "quick wins," which were opportunities to take simple, low-cost measures that could reduce waste, engage employees or create some other benefit; "innovation projects," longer-term initiatives that might require more stakeholder engagement and financial investment, and which were higher risk but offered attractive outcomes; and "game changers," big ideas on how to shift entire entire systems and strategies.

Some of this involved tapping into the ideas, passions and wisdom of Walmart’s massive employee base. Indeed, company lore was filled with stories of employee heroics and innovations. One of the better-known stories became referred to as “Melissa’s paint can.”

Via YouTube

Dutch Boy's twist-and-pour container, a.k.a. Melissa's paint can.

Melissa Davies was a Walmart associate in Bentonville who noticed that the gallon cans of Dutch Boy paint that Walmart was selling were difficult to use, especially by the women volunteers at her church who often found themselves doing small touch-up jobs. Davies told Dutch Boy that their paint cans weren’t woman-friendly, which led the paint maker to create smaller twist-and-pour packaging that was easier to handle. The innovative packaging became a hit among Walmart customers.

It’s unclear whether that story is even true, but nearly every Walmart employee knows about Melissa’s paint can, which is held up as a shining example of how associates can help Walmart meet customers’ needs, creating wins for both.

For Ruben, Melissa’s story painted a picture he was keen to replicate in sustainability. He wanted to be able to tell tales of environmental improvement that everyone similarly could point to. "The moral of Melissa’s story is that when we do things like this, we save the customer more money than we ever thought," he said. "We change the way that society looks and our shareholders didn't even know where that innovation came from."

Those stories would come — about reducing product packages on a line of kid’s toys, saving $2.4 million a year in shipping costs; about installing balers in stores to recycle plastic packaging, earning $28 million a year for what had been a waste product; about adding auxiliary power units to trucks, saving $20 million annually in fuel costs.

A trickle of "paint can" stories quickly became a gusher. "I would come in in the morning and open my inbox and see 10 stories of people inside the company who are doing things in China and Brazil and Bentonville that I couldn't even imagine," said Ruben. "People were figuring out where minerals were coming from in jewelry. People were riding on boats going upstream to learn about wild-caught fish and change the way that's happening."

By the end of the first year, Ruben put together a DVD containing 75 such stories, produced in part by having someone walk around with a borrowed camcorder from the electronics group and interview associates to document their ideas and innovations.

Bunking with the CEO

Among the earliest participants in conversations with Walmart was the Environmental Defense Fund. In early 2005, Gwen Ruta, then EDF’s head of corporate partnerships, went to Bentonville to meet with Scott and other environmental groups.

EDF has a long and pioneering history working with big and sometimes controversial companies, beginning with McDonald’s in the late 1980s. A behemoth such as Walmart long had been an elusive target for EDF, rife with seemingly unlimited potential for change.

"Walmart was somewhat oblivious to its negative impact on the world," said Sturcken. "Like every company, they liked to focus on their positive impact — of helping rural and lower-income customers afford everyday goods — and they had put blinders on and not realized, or were choosing to ignore, the impacts of their business model. At that point it was really obvious that their business model was not sustainable and that they had large, negative impacts."

EDF had been trying to work with Walmart for years. Fred Krupp, an environmental lawyer who became EDF’s president in 1984, had traveled to Walmart’s headquarters in Bentonville in the 1990s "to see if they would work with us," as he told me. "At the time, the leadership then, at least as high as I was able to get, didn't have a lot of interest."

EDF president Fred Krupp.

Walmart was, to say the least, a big prize for an environmental group such as EDF. "When you can get big companies to do important things, you can change the world," said Krupp. "Once Walmart had an interest in being a leader on these issues, it was pretty easy to see the incredible potential there. Early on, after the initial group meetings, as Lee Scott wanted to learn more about the issues, he had an interest in learning about climate change."

Scott turned to EDF to help suggest an agenda. "We suggested going to Mount Washington in New Hampshire, having a dinner up there, and spending the night in the bunkroom to learn about how a changing climate was affecting maple syrup production." That night, Scott and Krupp shared a room full of bunk beds with about 15 other people.

Jib Ellison recalled the trip. "Our idea was, let's take them on one- or two-day field trips to go places they normally wouldn't go, to see things they wouldn't normally see, to talk to people they wouldn't normally talk to about things they wouldn't normally talk about in the domain of sustainability. And in a sense connect their emotions with their intellect around this stuff. We wanted to educate them in terms of what is sustainability: why is it material to the business, how does it work as an innovation tool, what are the risks, what are the opportunities?"

Let's take them on one- or two-day field trips to go places they normally wouldn't go, to see things they wouldn't normally see, to talk to people they wouldn't normally talk to about things they wouldn't normally talk about.

"In Mount Washington, we talked about light bulbs," recalled Krupp. "Steve Hamburg, who is now EDF’s chief scientist and then was a professor at Brown, talked about why it would be great for Walmart to feature energy-efficient bulbs."

That conversation led to a face-to-face meeting a year later between Scott and Jeff Immelt, his counterpart at GE, the largest maker of compact fluorescent light bulbs, or CFLs. The two agreed to collaborate on a full-court press to educate the public about CFLs, and GE agreed to help Walmart sell 100 million of the bulbs by the end of 2007. In the retailer’s legendary, take-no-prisoners style, and with GE’s help, it unleashed an arsenal of initiatives: interactive in-store displays to help customers choose the right CFL; educational displays to allow customers to compare qualities and styles and calculate the potential financial savings, increased shelf space in lighting aisles and displays in unexpected places in its stores, marketing promotions on the company’s in-store TV and radio channels, and education and incentives to its employees to encourage them to generate sales.

Walmart reached its 100 million goal a few months early, in September 2007, and closed the year with sales of about 146 million CFLs. Emboldened by its success, Walmart announced plans to launch its own house brand of energy-efficient bulbs. It became one of the first major successes by Walmart to engage its customers in shifting to greener products.

Said Krupp: "I don't think I needed a demonstration of what a big force they could be, but I certainly got one following that discussion."

Walmart’s learning journey didn’t end in New Hampshire. "From Mount Washington we went to Kansas," said Krupp. "We looked at a farm and the agricultural practices of a farm in Kansas, where Lee was born and raised." By the end of the trip, Scott had seen the impacts of climate change for himself, including how those impacts could evolve into business issues for Walmart, both threats and opportunities.

It wasn’t just about the learnings. The personal connections from those trips were paramount and pivotal to all that would follow, just as it had been for Walton and Seligmann, who bonded during their globe-hopping eco-adventures. Over the years, Krupp has made sure to form similar bonds with Scott’s successors, Mike Duke and the current CEO, Doug McMillon.

The Walmart-EDF relationship has been enduring and productive, although not without critics. Some environmental groups have looked askance at EDF — a group founded in the late 1960s with the unofficial motto "Sue the bastards" — for its seemingly cozy relationship with the behemoth from Bentonville.

Among EDF’s rules of engagement in its corporate partnerships is that it doesn’t take money from the companies, that it publicly shares any resulting tools or learnings, and that it has the ability to speak freely and candidly about the corporate partner.

It’s worth noting, however, that while EDF hasn’t received financial support directly from Walmart, it has received more than $80 million from the Walton Family Foundation since 2003 — about $13.7 million during 2014, roughly 8 percent of EDF’s $152 million revenue for the year. (During 2014, the Waltons gave more than $202 million to scores of environmental organizations.) EDF says the Walton money funds its work on freshwater conservation in the Colorado and Mississippi rivers, and marine conservation in the Gulf of Mexico. For a handful of critics, the EDF-Walmart relationship represents a conflict of interest.

But it’s not exactly hush money: EDF freely has criticized Walmart over the years (including, for example, this 2010 piece on GreenBiz).

Ripple effect

EDF’s Sturcken described to me her experience in working with Walmart, a similar version of which I’d heard for years from a variety of nonprofit organizations, for-profit consultants, academics and some of the thousands of companies, both large and small, that manufacture products sold in Walmart and Sam’s Club stores.

There are common themes: the rapid speed at which things can happen when the company decides to move forward; the eye-popping data about how one seemingly small change in packaging or a product or process can have a massive environmental impact; the ripple effect those changes can have in the company’s supply chain; the straight-talking, down-to-earth directness of the Walmart leadership team.

Despite being such a big company, they were the fastest-moving company I've worked with.

"Despite being such a big company, they were the fastest-moving company I've worked with," said Sturcken, whose other corporate engagements have included McDonald’s, Fedex and UPS.

Having an office in Bentonville, said Sturcken, meant being able to meet with the company regularly to brainstorm ideas, talk through hard issues "and be really candid and work through challenges and be honest about our assessment of both what they should be doing, where they're making progress and where they're falling down. Being there over the long term has really engendered trust and access and therefore impact and results."

As Krupp told me, it is a lesson that Procter & Gamble, Unilever and other big companies that sell to Walmart have come to realize: "Being on the ground, helping to provide information, solve problems — there's no substitute for that. We learned that lesson early on. That is one of the ways we're able to have a good relationship with Walmart that is informed by their challenges and their needs. The more we are informed about their perspective, the more helpful we can be solving problems."

It’s been a synergistic relationship, to be sure. Walmart gets free consulting help from a nonprofit with a deep bench of business-savvy researchers and scientists. Meanwhile, EDF has a great story to tell the world and, not insignificantly, its funders.